EU Migration Has Been Good For The German Economy

I write about how migration is affecting European business and society

A technician works underneath an ICE train at the ICE factory in Griesheim, Germany. Credit: Boris Roessler/dpa via Getty Images

The debate about whether intra-EU migrants give more than they take in host countries is possibly the most vital debate currently being held across the bloc. It is held on various fronts: social, cultural, religious, and economic; but it is most likely in the realm of economics that this debate could ever hope to see something resembling resolution. But, as with all areas of social science, the answer is often provisional, and depends on what you’re measuring.

In the U.K. a Brexit-related paper commissioned by the government found the average EU migrant contributed around $3,000 more to the country’s public finances per year than the average adult. This doesn’t mean so much more in the pocket of each native Briton, but it does mean a net positive to the U.K.'s famously overstretched public institutions such as the free-at-the-point-of-entry National Health Service.

And yesterday came another positive, but different, economic metric from a major EU country, as the German Institute for Economic Research (Deutsches Institut für Wirtschaftsforschung, or DIW) released research finding EU immigration had boosted Germany’s GDP growth by an average of 0.2% every year between 2011 and 2016. GDP is a measurement of a country’s productivity, or how much stuff it makes. Again, this does not mean the average German has found 0.2% more euros in their pocket than they had the previous year, but it is a strong rebuke to those that say EU migration is a dragging force on developed EU economies.

“We ran a counterfactual analysis, so we compared the real world with a hypothetical world without EU migration,” said Dr. Marius Clemens, an economic researcher at the DIW and co-author of the report.

In this real world, since 2011 around ten million immigrants have come to Germany, roughly half of which have been EU migrants, or around 877,000 per year between 2011 and 2016, according to the DIW report. (This is gross immigration, counting only entries, rather than net immigration which balances against those that left Germany) This is a stark increase on the period between 2006 and 2010, during which Germany saw only around 371,000 EU-28 migrants arrive per year, and it is still far larger than the U.K. received in the latter 2011 – 2016 period (326,000 per year), despite widespread fears in that country that immigrants from newcomer EU states Bulgaria and Romania would overrun the U.K. specifically.

Needless to say, the above is a huge increase in the amount of EU citizens flowing into Germany. So how does this translate to an incremental boost in German GDP?

If one bit of research will explain the beneficial effect, the labor market participation rate ought to do it. For every year since 2011, EU migrants have participated in the labor market slightly more than Germans. That is to say, they’ve worked more. According to Dr. Clemens, this is down to the simple fact that most EU migrants come with the express intention of working in Germany “therefore they either are working already or are searching for a job.”

The benefits of this cycle of enhanced productivity are diffuse, but Dr. Clemens says there are two main beneficial effects on the German economy from an inflow of EU labor. The first comes in times of an economic boom, as Germany is experiencing, when available labor is nearly fully employed and firms need to take steps to find new workers. Domestically, firms can either increase wages in order to attract people not already in the labor force, which reduces productive efficiency and drives a cost to the consumer, or increase the hours of part-time workers to roughly the same cost. EU workers, on the other hand, can come in to fill the gaps left by the domestic workforce, without the need to artificially drive costs up but also, and crucially, without depressing the wages of the current employees.

On the other side of things, said Dr. Clemens, migrants increase the consumer pool for German producers. “Migrants consume and invest as they do in their country of origin. Therefore, the demand for German products increase.” Simply put, migrants buy and spend in the host country just as they would at home, which helps boost sales for German companies who can turn that around into increased production and higher wages and shareholder dividends.

Again, for the average German this can be hard to see in the everyday. But nonetheless, and though the DIW study concentrated on the aggregate effects to the total German population, Dr. Clemens said both German bosses and workers benefit individually. “As an entrepreneur and employer, he or she profits from lower costs for (seeking out) qualified workers. As an employee, initially nothing changes because she or he is employed (already) and gets a wage. But with lower production costs, prices will not be as high as they usually could be. So (both the) consumer and employer profit.”

In terms of future policy, Clemens says there are still structural barriers making economic EU immigration difficult, at a time when the country’s industry needs it to grow: “Like many other EU countries, Germany faces a long-term demographic challenge which can be overcome with increased immigration.” One significant barrier to this is the uncertainty of whether EU migrants will find their qualifications and education recognized in the host labor market. That is, how easily they can show they’re qualified for the jobs on offer.

To address this, Clemens says measures ought to be put in place to streamline labor market access: “by improving the procedures for recognizing foreign vocational training and degrees, simplifying access to German language courses abroad, and above all, increasing the appeal of attending university in Germany.” With these kinds of measures, Clemens says he would expect more young foreigners to complete vocational training or university education in Germany, and the labor pool to continue to expand.

But it doesn’t stop there. Even though this study focused on EU migrants, Clemens said German productivity could be further boosted by workers from even further afield: “it could also be beneficial to facilitate the labor market access for workers from non-EU countries."

I cover migration all across Europe and neighboring regions. You can get in touch on friederik.lindsay@gmail.com or @FreyLindsayMCP

I am a journalist focussed on business, migration and how the two intersect. As host and producer of the Migrant Crisis Podcast, I covered the massive upheavals across Europe and the world over the last few years, telling stories on the ground from such flashpoints as the G...